Watch that upward creep in Libor, bank rates

Yes, they’ve got a long way to go before coming even close to their 2008 peaks. But the very short-term lending rates that became a hallmark of credit markets’ massive dysfunction three years ago are starting to creep up. And investors are noticing.

On Monday, the three-month London interbank offer rate in U.S. dollars rose to 0.34289%, the highest since August 2010. The TED spread, which compares 3-month LIBOR to yields on Treasurys of the same duration, has popped to 0.3229% from 0.13222% in mid-August. That’s another sign of European financial distress, note Citigroup currency analysts.

The jump in bank credit costs looks worrying, especially when accompanied by a wave of comments from German officials that seem to be preparing for a Greek bond default. But context, or rather timeline, is everything. While 3-month Libor has risen about 10 basis points from mid-July, it’s still percentage points away from its highs over 4.5% reached in October 2008. (One basis point is 1/100th of a percentage point.)

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